Lato Milk: Discussing the Dairy Industry in Uganda and East Africa with Amit Sagar of Pearl Dairy Farms

Interview with Amit Sagar, CEO of Pearl Dairy Farms

What is your general assertion of the dairy industry in Uganda?

The dairy sector in Uganda is in its infancy. Ten or fifteen years ago, Uganda used to import dairy. With a lot of government support and policies, dairy farming became a norm with the population, especially in the southwest of Uganda. Twenty years down the road, Uganda is now the largest producer of milk in terms of exports in Sub Saharan Africa. There are challenges in the sector working with smallholder farmers. We, as a company, work with over 10,000 smallholder farmers and it is always very difficult to train and pass on the knowledge to these farmers. The productivity of the cows still remains low. We have 7 to 8 liters per cow in terms of production per day versus a global average of 15 at minimum for open grazing. There is a lot of work that still needs to be done in terms of farmer training and getting the technical skills to the farmers to get the maximum production from the cows. This is especially concerning feeding, looking after the animals, and irrigation and water for the animals on the farms. The sector overall is quite large. In Uganda, we have a culture of keeping cows. Originally, this was mostly for beef, but much of it is now being shifted towards milk production. The Ugandan dairy business has huge potential in the coming years. We have a lot of land, the right weather, and there is no reason why Uganda cannot feed the majority of other African countries which are currently still importing milk from outside the continent.

Why did you choose to operate in Uganda?

Uganda had an issue of excess milk, so it needed a processor who could take the excess and redistribute it to countries which had a deficit. Kenya has a milk deficit. Tanzania has a milk deficit. We like to leverage the East African Community and produce in Uganda and distribute to the neighboring markets. We are also now manufacturing in Kenya. We are working with farmers in Uganda as well as in Kenya, but due to seasonality, there is always going to be a shortage in Kenya. There is a higher consumption per capita of milk in Kenya versus Uganda which is driving the deficit in Kenya. Overall, the East African Community as a bloc is self-sufficient. In terms of milk production locally, we do not need to import milk from other continents or other countries as a bloc. The idea of our company is to work with farmers within the bloc to continue the production of milk on their farms to meet the growing demand from the population growth in the region.

What are your key competitive advantages? How do you distinguish yourself from other dairy producers?

Dairy is a very capital intensive business and we have multiple competitive advantages. We are the only brand providing instant milk powder in the region. East Africa used to import these products before we started localized manufacturing. We are the only instant milk producer via spray dryer in the region which is a clear advantage for us. All our equipment is extremely modern and new from Tetra Pak and similar globally. We have very cost efficient production costs versus our competition. We have strong infrastructure in terms of milk collection which differentiates us from the rest because we like to have a direct relationship with farmers. We are collecting milk directly from the farmers as much as we can all the way to the consumer. We train the farmers and have loyalty to them. We run the milk through the best machines and we also do the distribution ourselves. Having our own distribution and expertise in distribution is also a clear competitive advantage. Overall, we have a very strong brand. We have market leadership in the product categories we manufacture. In Uganda, Kenya, and Tanzania, we are either number one or number two in every single product category from yogurt to powder, UHT milk or flavored milk. The brand Lato Milk is extremely strong and popular and the thesis behind the brand is to ensure that quality and taste are not compromised for consumers.

What are some of your success stories?

In Uganda, Kenya, and Tanzania, we are either number one or number two in every single product category from yogurt to powder, UHT milk or flavored milk.

The biggest success story or impact we have had is what we have done in southwest Uganda and what we have now started to do in southwest Kenya. When we set up our factory in Uganda, the average milk price per liter was around $0.10 to $0.12 which was barely enough to meet the farmers’ costs. It was more of a hobby for farmers to sell milk than a viable business. However, because we now went outside Uganda to look for markets for Ugandan milk, we managed to double the price that the farmer gets per liter in the past six years, meaning that the livelihoods of thousands of farmers in the region we operate in have changed substantially. It is always a proud feeling when you drive to Mbarara where our factory is located. When we set it up, there was no traffic. We felt like our factory was located well outside the city. Now, when we go to Mbarara and we see all the development and our factories soon becoming part of the city, it makes us very proud that we have had such a big impact on the economy and the livelihoods of the farmers. We are now doing the same in Kenya. Since last year, we are now procuring milk from farmers in Sotik in Kenya. We have just started the journey that we did in Uganda 10 years ago. In addition, we have had many other achievements. We have become the market leader in powder and UHT milk in the region. Our brand has numerous times been awarded the best milk in Uganda. We also run a CSR activity where we have taken disability as a problem we want to address. Uganda has over 1.4 million children with some sort of disability who we try and help by doing corrective surgeries. The program so far has just been a drop in the ocean but we have done approximately 50 surgeries successfully. There have been cases where children who could not walk before have now started to walk for the first time in their lives.

What is your stance on organizations operating an environmentally friendly business?

We need sustainability in everything we do. We are also trying to move away from plastic to paper packaging. We are working with our suppliers, mainly Tetra Pak, to transition the market from single use plastic packaging to paper packaging which is recycled. Also, we are measuring our carbon usage at the factory and we are looking at changing our power usage to more sustainable ways, including putting up solar power in our factory so that we can continuously reduce our current carbon usage. It is something which we have started to look at early on as a brand because, at the end of the day, the environment is ours to protect.

What is your stance on formally and informally processed milk?

The first thing that is very important to understand when milk is collected on the farm is how it is collected. In the informal sector in these countries, with the number of hands that have touched the milk directly or indirectly or through cans that may or may not have been washed, the risk is extremely high that by the time you get the milk the bacterial load is too high. It is not safe to consume unless it is processed. Now, the consumers are spending a lot of money to heat the milk at home so that they can consume it. One of the biggest causes of foodborne diseases, especially in children who are the biggest consumers of milk, is due to buying milk informally because of the way it is collected and how the consumer receives it from the farms. In Europe or other countries, you still have the luxury of debating whether you should consume from the farm or from the processors because most of the farms are also running automated machines, effectively reducing the chances of foodborne diseases to be passed on to the consumer.

Which markets are you present in? What are you doing internationally, outside of Uganda?

Currently, we sell our products in Uganda, Kenya, Tanzania, Malawi, Burundi, and South Sudan. We set up in Ethiopia early this year and we are now setting up in Zambia. These are countries where we have our consumer brands selling either our powder or UHT milk. We also have international customers we sell our ingredients to in Japan. We have many customers in the Middle East, West Africa, and DRC as well. We work with business to business and business to consumer. For business to business, we are already a global supplier to many companies and business to consumer are the countries where we have our physical presence.

Do you sell with the same brand for your business to business? What is your strategy towards that segment and how do you approach these international customers?

For the international customers, we sell them our bulk powder under the same brand, but they use the powder to produce the final products. Our brand does not get to the consumers. The manufacturers use our ghee, butter, oil or fat in the manufacturing process. We have many ice cream manufacturers in the Middle East who use our powder as one of the ingredients. Many food manufacturers in Japan use our ghee in their ready mix curries which are very popular there.

What challenges do you face trying to acquire more market shares to grow?

The challenge we face in the international market is that there is still an African discount that we have to fight against. From a product quality and chemical composition, we match international standards. We would not be selling in Japan if there was any quality compromise. However, we do not get the premium because we do not have a “made in Europe” or “made in New Zealand” tag to our business. This is something which we are trying to address in the long term. It is always a challenge given the assumption that since a product is made in Africa that it is not the same level or standard. It is an ongoing process. Normally, we have to sell at a discount to start the business. Once the customer gets comfortable with the quality on a long term basis, then we normalize the discount that we started off with.

What is your vision for the company in the medium term, three years’ time? What would you like to have achieved?

We have an aggressive growth plan for the next 24 months. We have many capacity increase plans in Uganda as well as in Kenya. We have plans of adding additional capacity on our powder business as well as our UHT business and continuing the journey of becoming the market leader in ambient dairy products in Sub Saharan Africa. We are already number two in Sub Saharan Africa in terms of ambient dairy and with incremental capacity, we will be the market leader. Ambient dairy means any dairy that does not need refrigeration. Milk powder or long life milk all fall under ambient dairy.

How do you want to grow to achieve number one status in the ambient dairy business? What is your strategy?

Growth needs to be in terms of capacity, market share, and the number of countries represented. We will have to increase manufacturing capacity in Uganda as well as in Kenya, which is ongoing now. We will be ramping up new markets in Ethiopia, Zambia, and then we will be going to Mozambique and Angola in the next 12 months so we will have additional markets to sell our products. The other aspect is trying to sell as much of that product in business to consumer packs and having strong marketing campaigns in all the countries we work in to get consumers to buy more of our consumer packs and get the brand much stronger, not only in East Africa, but in Sub Saharan Africa.

Are you open to forming joint ventures or strategic partnerships? Are you looking for investors?

We are always looking for strategic partnerships given the fact that we are in a very technical business and working with many different stakeholders. We need a lot of help technically and financially to work with the farmers to provide them with the infrastructure to produce more milk, to produce quality milk, to collect the milk, and we need capital for expanding our factories, product knowhow, and recipes on innovation on the product side. There are a lot of different stakeholders and many things that are required for us to be successful. We are continuously partnering with all of our suppliers, bankers, equity players, and looking at more collaboration from different people for different parts of the value chain.

What is your inspiration? What drives you to do what you do?

We are extremely passionate about this business and we are changing lives. Every day, we work with over 20,000 farmers. Knowing that we are actually paying for their livelihoods is motivating us to grow more. We see the impact when we go to the families that are supplying us with milk. The motivation for us is the impact the business has on communities and farmers and the livelihoods of people.

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